01/02/2018

Death and Taxes Remain Inevitable

When planning around gift and estate taxes, it is important to understand that your own expected longevity plays an important role.

Estate planning attorneys frequently tell people that they need to create estate plans before they become senior citizens. Attorneys also encourage people to do their planning before death is looming.

There are several reasons for this.

The most commonly cited reason is that you never know what might happen. Anyone can have a fatal accident anytime, so it would be a good idea to have made plans.

However, there are other reasons why planning ahead is important. This includes preparing for end-of-life expenses, as well as the rules surrounding eligibility for Medicaid to pay for nursing home care.

Both federal and state tax authorities are aware that if a person knows he or she will pass away soon, there is a strong incentive to rearrange financial affairs to get around estate taxes. People may be tempted to give their money away on their deathbeds, in order to shrink their estates below the estate tax exemption limit.

For that reason, tax codes include provisions that gifts made within specified time periods before a person passes away are still considered part of the estate. Other tax code provisions similarly anticipate things a dying person might be tempted to do to rearrange their finances.

Because of these issues, it is important to plan ahead for the estate tax.

Your plan needs to be in place before you ever think it will take effect.